Best of the Week
Most Popular
1. Investing in a Bubble Mania Stock Market Trending Towards Financial Crisis 2.0 CRASH! - 9th Sep 21
2.Tech Stocks Bubble Valuations 2000 vs 2021 - 25th Sep 21
3.Stock Market FOMO Going into Crash Season - 8th Oct 21
4.Stock Market FOMO Hits September Brick Wall - Evergrande China's Lehman's Moment - 22nd Sep 21
5.Crypto Bubble BURSTS! BTC, ETH, XRP CRASH! NiceHash Seizes Funds on Account Halting ALL Withdrawals! - 19th May 21
6.How to Protect Your Self From a Stock Market CRASH / Bear Market? - 14th Oct 21
7.AI Stocks Portfolio Buying and Selling Levels Going Into Market Correction - 11th Oct 21
8.Why Silver Price Could Crash by 20%! - 5th Oct 21
9.Powell: Inflation Might Not Be Transitory, After All - 3rd Oct 21
10.Global Stock Markets Topped 60 Days Before the US Stocks Peaked - 23rd Sep 21
Last 7 days
FREETRADE - Stock Investing Platform, the Good, Bad and Ugly Review, Free Shares, Cancelled Orders - 15th Jan 22
WD 14tb My Book External Drive Unboxing, Testing and Benchmark Performance Amazon Buy Review - 15th Jan 22
Toyland Ferris Wheel Birthday Fun at Gulliver's Rother Valley UK Theme Park 2022 - 15th Jan 22
What You Should Know About a TailoredPay High Risk Merchant Account - 15th Jan 22
Best Metaverse Tech Stocks Investing for 2022 and Beyond - 14th Jan 22
Gold Price Lagging Inflation - 14th Jan 22
Get Your Startup Idea Up And Running With These 7 Tips - 14th Jan 22
What Happens When Your Flight Gets Cancelled in the UK? - 14th Jan 22
How to Profit from 2022’s Biggest Trend Reversal - 11th Jan 22
Stock Market Sentiment Speaks: Are We Ready To Drop To 4400SPX? - 11th Jan 22
What's the Role of an Affiliate Marketer? - 11th Jan 22
Essential Things To Know Before You Set Up A Limited Liability Company - 11th Jan 22
Fiscal and Monetary Cliffs Have Arrived - 10th Jan 22
The Meteoric Rise of Investing in Trading Cards - 10th Jan 22
IBM The REAL Quantum Metaverse STOCK! - 9th Jan 22
WARNING Failing NVME2 M2 SSD Drives Can Prevent Systems From Booting - Corsair MP600 - 9th Jan 22
The Fed’s inflated cake and a ‘quant’ of history - 9th Jan 22
NVME M2 SSD FAILURE WARNING Signs - Corsair MP600 1tb Drive - 9th Jan 22
Meadowhall Sheffield Christmas Lights 2021 Shopping - Before the Switch on - 9th Jan 22
How Does Insurance Work In Europe? Find Out Here - 9th Jan 22
Effect of Deflation On The Gold Price - 7th Jan 22
Stock Market 2022 Requires Different Strategies For Traders/Investors - 7th Jan 22
Old Man Winter Will Stimulate Natural Gas and Heating Oil Demand - 7th Jan 22
Is The Lazy Stock Market Bull Strategy Worth Considering? - 7th Jan 22
What Elliott Waves Show for Asia Pacific Stock and Financial Markets 2022 - 6th Jan 2022
Why You Should Register Your Company - 6th Jan 2022
4 Ways to Invest in Silver for 2022 - 6th Jan 2022
UNITY (U) - Metaverse Stock Analysis Investing for 2022 and Beyond - 5th Jan 2022
Stock Market Staving Off Risk-Off - 5th Jan 2022
Gold and Silver Still Hungover After New Year’s Eve - 5th Jan 2022
S&P 500 In an Uncharted Territory, But Is Sky the Limit? - 5th Jan 2022
Quantum AI Tech Stocks Portfolio Current State - 4th Jan 2022
The Alibaba Stock Market - 4th Jan 2022
Will Gold & Silver Be Investment Outcasts in 2022 Again? - 4th Jan 2022
Stock Market Happy 2022 Entry - 4th Jan 2022
Complete paradigm shift will make Gold the generational trade - 4th Jan 2022
Corsair MP600 NVME2 1tb Drive Sudden DEATH Failures - Back Up NOW! - 4th Jan 2022
AI Tech Stocks Portfolio Updated Buying Levels and Zones Part 2 of 2 - 3rd Jan 2022
Stock Market Sentiment Speaks: 2022 Can Be Your Best Year Ever - 3rd Jan 2022
2020-22 - Soaring costs of the West's Pandemic failure - 3rd Jan 2022
AUTODESK (ADSK) - CAD - Metaverse Stock Analysis Investing for 2022 and Beyond - 2nd Jan 2022
Stock Market Sector Themes In Play For 2022 - 2nd Jan 2022
Excuse Me Mr Gold. What Year Is It? - 2nd Jan 2022
Stock Market Early 2022 Should Continue Melt-Up Trend In January / February - 2nd Jan 2022
UK Energy Crisis WARNING 2022 - How to Avoid Huge Increase in Gas and Electric Fuel Bills Right Now! - 1st Jan 2022
Why You Need A PR Expert For Your Financial Startup - 1st Jan 2022
TENCENT- Chinese High Risk GAMING Metaverse Stock Analysus for Investing 2022 and Beyond - 31st Dec 21
Gold Price Forecast 2022 - The Golden Year - 31st Dec 21
Will 2022 Be Better for Gold Than 2021? - 31st Dec 21
Gold Stocks – Wishing And Hoping (And Losing) - 31st Dec 21
Sheffield Christmas Market 2021 SANTAS GROTTO at Peace Gardens, City Centre Sights and Sounds - 31st Dec 21
Nvidia Leaves planet Earth - AI Tech Stocks Analysis - 30th Dec 21
Google (Alphabet) AI Tech Stocks Analysis - 30th Dec 21
Stock Market Santa Rally Challenge - 30th Dec 21
Sheffield Christmas Market Stalls, Sights and Sounds 2021 - 30th Dec 21
Investment Roadmap for 2022 - 30th Dec 21
2022 – The Year of (Gold) Inflation? - 30th Dec 21
Overvalued Stocks and Housing Perfect Storm for Gold - 30th Dec 21
My Most surprising Crypto call to date - 30th Dec 21
What is a Rehab Clinic and How It Is Beneficial for People? - 30th Dec 21

Market Oracle FREE Newsletter

How to Protect your Wealth by Investing in AI Tech Stocks

Gold, Stocks and Options

Commodities / Gold and Silver 2011 Jun 08, 2011 - 03:13 AM GMT

By: Bob_Kirtley


Best Financial Markets Analysis ArticleA question that we constantly wrestle with is are gold producers correlated to gold prices as gold is their underlying asset, or are they correlated with the stock market as they stocks? Is there safety in gold producers should the stock market in general experience a pull back? If so, why are the gold producers lagging behind the steady progress being made by gold prices at the moment?

We start with a quick look at the DOW Jones Industrial Average Index, the INDU, where we can see that it fallen by around 6% since the start of May.

Also note that the RSI, currently sitting at 33.27 suggests that the Index is now oversold and could be due for a re-bound. As we see it all eyes are focused on the possibility of a QE3 or further governmental stimulus, without it the stock market would crumble and investors would lose whatever shreds of confidence that they may have in the administrations ability to manage in a proper and professional manner.

The second chart is more commonly known as the golds bugs index or the HUI and it to has fallen by around 17% since mid April 2011, suggesting that it is following the INDU and not gold prices. This is micro analysis and can easily wrong foot us, however, when the financial crash came gold fared reasonable well, but the gold producers were hammered with no stock spared as deleveraging gathered pace.

Now compare the HUI to the chart for gold, where we can see that apart from a sharp, but shallow correction in early May, gold prices continue to make steady progress. There now appears to be a disconnect between physical gold and the gold producing miners.

However, the inverse relationship between gold and the USD appears to be intact as the rally by the USD in May has spluttered to a halt and is now heading south, hence golds steady progression. We had expected the USD to rise a little further but it doesn’t appear to the legs this time, so we now anticipate another test of the ‘72′ level. If it breaks through ‘72′ then things will turn ugly quickly. Fortunately the troubled Euro is struggling with a number member states who are incapable of putting their houses into order and are in need of constant financial support in the form of bailouts.

If like us, you are of the opinion that the real financial crash still lies ahead of us, then the flight to safety, should we need one, points to the precious metals themselves and not the producers. A repeat of the Lehman Brothers type of event could see our core holdings of quality stocks take a major haircut. So, what should we do about it.

Going forward we expect the next eight weeks to be characterized by sideways consolidation. For the precious metals sector this is historically a lackluster period of low demand. The holiday season in the western world sees many of the big players leave their trading desks and head for the beach. If we do trade sideways then there may be the opportunity to sell a few covered calls with the expectation that they expire worthless and we would collect the premium.

However, for those who have the patience it may be worth waiting until around mid-August which is when we expect both gold and silver prices to gain some traction as QE2 will have ended and we should know just what is taking its place. We anticipate a QE3, albeit in a hard to spot disguise. Should a further stimulus package materialize then gold and silver prices will take off.

That being the case then our core holdings should recover in rapid fashion and head north. However, acquiring both physical gold and silver and having it in your very own hands is still a good way to be involved in this bull market.

During this summer period we will be looking to acquire a few of our favourite quality gold and silver producers along with the implementation of a number of options plays that could be prove to be very rewarding.

Now, don’t go to sleep, because you think that you have plenty of time to spare, you haven’t. We all need to start developing our strategy right now by selecting a model portfolio for these trades. Then we need to observe their behavior over the coming weeks, noting those stocks that mirror the movements of the underlying asset. If the behavior of the chosen stock is odd and does not mirror the movement of the underlying asset, then don’t try and reconcile it, drop it and move on to your next choice. When you are happy that you have a vehicle that suits your selection criteria, formulate your plan by deciding before hand the following:  

1. How much of your hard earned cash are you willing to risk?

2. At what price will you buy?

3. At what price will you sell?

In terms of options trading, our plan is to look primarily at the January 2012 series in most cases, as we anticipate that the lions share of the action will take place between September 2011 and January 2012. The possible vehicles for these trades will be the larger ETFs and a selection of what we perceive to be undervalued stocks. Its important to adopt a spread of positions with exposure to the next up-leg by this bull market, as it is both disappointing and expensive to identify a major move and then make the wrong choice within the market sector and finish up empty handed. 

A good test in deciding on the amount of money that you are prepared to put at risk is to ask yourself just how you will feel if you wake up one morning and you have lost the lot. If that feeling hurts then you know that you are placing too much cash into that trade. And don’t get carried away with what if it goes to the moon fantasizes – it seldom does. Having decided on the price that you are prepared to pay for a tranche of options contracts, go ahead a place your order with your price stated as the ‘Limit’ that you are prepared to pay. Now be patient and wait for your order to get filled, do not chase it by upping your bid as your emotions will come into play and you wont be as rational as you were in the cold light of day. Lets assume that your order gets filled and you are now the proud owner of a few options contracts. The next step is to put them up for sale at your per-determined price, again your order should be a limit order and again you should be realistic and patient. If there is a rally and your selling price is triggered be happy, don’t beat yourself up about the amount of money that you think you have missed. A smaller profit in your very own hands is better than a larger one that may or may not materialize.

So chop-chop, it is due diligence time for you and time is of the essence. Also remember to keep some ‘opportunity cash’ on the sidelines as none of us really know just when a bargain might present itself.

To stay updated on our market commentary, which gold stocks we are buying and why, please subscribe to The Gold Prices Newsletter, completely FREE of charge. Simply click here and enter your email address. (Winners of the GoldDrivers Stock Picking Competition 2007)

For those readers who are also interested in the silver bull market that is currently unfolding, you may want to subscribe to our Free Silver Prices Newsletter.

DISCLAIMER : Gold Prices makes no guarantee or warranty on the accuracy or completeness of the data provided on this site. Nothing contained herein is intended or shall be deemed to be investment advice, implied or otherwise. This website represents our views and nothing more than that. Always consult your registered advisor to assist you with your investments. We accept no liability for any loss arising from the use of the data contained on this website. We may or may not hold a position in these securities at any given time and reserve the right to buy and sell as we think fit.
Bob Kirtley Archive

© 2005-2019 - The Market Oracle is a FREE Daily Financial Markets Analysis & Forecasting online publication.

Post Comment

Only logged in users are allowed to post comments. Register/ Log in